A chart of accounts must start with the end in mind. The end is always the reports that you want to generate and use for decision-making. What data do you need and how should that info be presented? That determines the format of the chart of accounts. For example, all information about age-level expenses in a church should be in the same area of the CoA and not spread out everywhere; in fact, all the children’s and youth expenses should be grouped together and then sub-totaled which then totaled with other age-level expenses let the reader know how much was spent in that category.
The numbering system in a CoA is very logical. I recommend that accounts have no more than five (5) numbers but I’ve seen some as short as three numbers and as long as 16 digits. Five is a happy medium!
Here is the basic accounting numbering system which is used pretty much everywhere in the US (where AICPA controls the accounting system).
1XXXX – Cash
2XXXX – Payables, Restricted or Designated Funds
3XXXX – Retained Equity or Net Assets
4XXXX – Revenue & Receipts
5XXXX – Usually reserved for revenues related to special projects
6XXXX – Expenses
7XXXX – Expenses
8XXXX – Expenses
9XXXX – Usually reserved for expenses related to special projects
The first digit is the accounting classification. The rest of the digits can be used for sub-categories and other classifications. For instance:
68XXX Care & Fellowship
75XXX Young Families
76XXX Median Adults
78XXX Senior Adults
81XXX Office & Administration
85XXX Building & Grounds
Finally, when the system is set up, the last digit is usually zero (0) so that additional lines can be added over time as needed without having to renumber the entire CoA.
Be familiar with the standard accounting numbering system so that when you see an account number, you’ll have an idea of what its accounting classification is. It will help you when you meet with the finance committee.
Larger churches have more complicated accounting structures. See part 3 for larger church department and multisite accounting.